Awesome proposal! Excited to see it put forward to a vote. However, I’m not sure about the idea of requiring node operators (NOs) to stake $LDO tokens. I think it makes sense being optional with the added benefits to them (e.g. $LDO yield and maybe lesser fees). Since they already have to stake $ETH, adding the $LDO staking requirement may potentially reduce the number of people interested or able to provide NO services.
Why over complicate ?
Stake LDO, share stETH to LDO stakers, because it is a eth backing platform, as rewards from protocol over ETH staking rewards fee, not the other way around.
Use a fair % to distribuite.
Keep part in the treasury for development and maintenance.
So far that is what I think…
Need to think more.
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tldr
- probably gud eventually in some form but we prefer to wait for dual governance and an ecosystem to form around the staking router
- highest impact is to focus on long-term product things, let the pie grow a bit more first
- dont design for ponzinomics, design for a better protocol
- eg flap/flop auctions, staggered redemption curves, mint/burn on price thresholds, etc ideas welcome
wall of text
Generally we agree with @monet-supply for similar reasons.
- some sort of balancing incentive for LDO holders is probably needed in the long-run
- the current proposal is designed for LDO value extraction maximization rather than balancing the Lido on Ethereum protocol as a whole–we are better off in any case focusing on long-term impact
- It is also likely far too early as it would be nice if we could let the Staking Router ecosystem mature and launch Dual Governance before refocusing
The more governance levers we introduce to the protocol, the further we stray from developing a thin, neutral protocol. The Staking Router and Dual Governance are important steps in the right direction, but a governance-controlled payout is a step in the opposite direction.
Btw we’d go further than that even and suggest that stETH with the Staking Router and Dual Governance could become the pivotal decentralized umbrella liquid staking token to face off against centralized entities, as any decentralized pools of validators could theoretically join stETH through a SR Module. These are developments that are well worth focusing development interest and focus on over the next few months.
In our view it would be better to have an automatic system with no governance input rather than one where governance can control the payout ratio.
Example such systems
Maker flap/flop auctions: In reality, the flop system would likely not work or not work well – in a scenario where stETH is undercapitalized from a giant slashing event that wipes out the surplus, it would likely be very difficult to raise enough ETH through LDO sales at that point and any efforts to sell would make it even harder.
Staggered redemption curves: The clever Gyroscope stablecoin team have other ideas to help bolster the defense of their protocol, such as decreasing redemption curves to slow down a ‘run’ on the assets in the event of a market shock. For stETH it could look something like removing the commitment to 1:1 withdrawals if the protocol surplus goes below a critical threshold level or 0. This could buy time and avoid issuing LDO in an extreme market scenario. This has further benefits by increasing the cost of governance attacks.
Mint/burn on valuation thresholds to bolster and burn the surplus: The other balancing factor that is missing from this proposal is a trigger to issue new LDO when the valuation is appropriately high. The thresholds could be set without oracles, as a function of the Surplus to Token ratio and AMM LDO/ETH prices.
In any case, what we should be solving for is a more perfect protocol, rather than try to introduce narrow tokenomics that we believe will game the price. The constraints that systems like this follow probably look something like:
- Possibility to make threshold levels immutable
- for eg % of totalSupply of stETH or a ratio of surplus to AMM price etc
- Automatic and uncomplicated mechanism with explicit rules understood upfront
- No privilege for token holders ‘in the know’, even-handed equal treatment of all LDO token holders alike
Agree with @monet-supply on needing more capitalization. 6k is arbitrary, quite low (out of date?).
LDO as bonding token
Regarding LDO as a bonding token for Node Operators, we get the gut feeling that this is ‘early bagholder rewarding’ tokenomics that doesn’t actually secure the protocol and ‘endogenous collateral’ shouldn’t be the bonding token in any case.
Other thoughts
A stETH-powered L2 would be great!
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Nice proposal!
I just want to highlight that implementing a cooldown period limits the potential integrations that can be built on top of any such system. For example, at Inverse Finance, we’d love to implement staked LDO as a collateral option in the future when it’s ready; some really cool concepts can be built, such as self-repaying loans using the rewards. However, any kind of lock or cooldown period makes this a lot more challenging to do in a safe way due to the need for instant liquidity for liquidations.
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I agree that it’s unquestionably important to tie the success of the protocol to the LDO token. Revenue sharing is the way to do that, as so many other protocols have shown. If this is not done in the next few months, we could see LDO start to go down from farmers dumping.
It is important, however, to understand the dynamics of people locking their LDO. People eventually need to make a profit. If you’re buying back LDO and distributing that, people just accumulate LDO → no realized profit. An alternative would be to buy ETH and distribute that. People would then be realizing their profit on buying LDO without having to ever sell.
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Regarding LDO as a bonding token for Node Operators, we get the gut feeling that this is ‘early bagholder rewarding’ tokenomics that doesn’t actually secure the protocol and ‘endogenous collateral’ shouldn’t be the bonding token in any case.
Strongly disagree with this. I think a second layer of LDO/ETH (a combination of those) bonding (which gets slashed locally based on individual NO performance) among NOs is def required as right now NOs have no skin in the game. If they get slashed the Insurance Fund has to cover for their losses at the expense of LDO holders.
Not including any bonding was a great way for Lido to scale quickly but as the stakes get higher we can’t just rely on human layer of coordination among NOs, and the DAO to handle that. The incentives/alignment needs to be more economic on that front.
At 5% take rate the profit margins are huge for NOs and they don’t contribute to the insurance fund at all. If a NO is responsible for managing $100m I believe that they should be able to post atleast 1-2% of that amount as LDO/ETH to show alignment and help cover some part of insurance fund. Otherwise we are left with Insurance fund being solely DAO treasury growing at 5% of staking yield per year.
And If you check the chain most of the NOs (atleast with public addresses) have already sold their LDO. Let’s see if any NOs want to come out and publicly disclose their holdings and talk about their alignment
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Additionally, I think targeting a much higher capitalization/insurance buffer (0.2-1%, ~12,000-60,000 ETH based on current circulation) before distributing earnings makes sense. And this insurance backstop could theoretically be put to use providing liquidity in Curve or Balancer stable LP, which can reduce Lido’s operating costs linked with liquidity mining.
I agree with this. Think Lido needs more insurance as TVL grows at a fast rate but I don’t understand why Lido DAO (LDO holders) are the only ones who needs to pay for it from their 5% take. Imo to grow the insurance pool it’s important to introduce another parameter in terms of NOs stake rather than solely squeezing out DAO.
Its insane how social slashing still isn’t implemented here and why no one has brought it up. Just few weeks ago the RockLogic GmbH slashing incident occurred and I think its a great time for the DAO to realize that they are sharing 5% of the revenue with NOs and these NOs should contribute to more aspects of the protocol like insurance fund and posting some collateral to have skin in the game and show confidence in their own capabilities.
Running nodes isn’t a big favor when you’re making insane margin of profits at the expense of holders. There’s huge misalignment there imo
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I agree with @monet-supply that the LDO stakers return should probably be ETH denominated and be used for LP like maybe ETH-wstETH LP tokens like how curve returns 3pool tokens to CRV stakers
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Agree with bonding just not using LDO as the collateral, but open to changing views obviously.
Some measure of bonding or insurance is definitely desirable, especially as permissionless-style modules are added to the Staking Router, but anything other than stETH and ETH is basically second tier (or worse) for any kind of serious slashing or outtage event, and therefore isn’t a serious option for anything at scale. This is because if there is a serious event, any other kind of collateral will just get market-sold by other holders and then its utility for the purported use case of making stakers whole greatly diminishes.
My opinion is that collateral should always be primarily in ETH or stETH, and that secondary collateral can be in LDO or other tokens (e.g. specific modules can propose to have different tokens as utility or bonding tokens in addition to ETH).
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Ask them to bond ETH and LDO both, if they do an “oopsie” then the regular procedure of shutting down the validators etc happen but on top of that portion of their ETH gets slashed as well to cover the insurance, on top of that some portion of their LDO gets taken and gets re-distributed to stakers.
I think LDO should be used for reputation based scoring and every NO should be required to stake atleast some and staking more ETH and LDO gives them more reputation and more incoming stake. This should be extremely useful when staking router is live and protocol wants to allocate incoming ETH into different routers and various NOs within a router
The jobs of NOs is to run validators well and protect the network, not to pump LDO bags. If they don’t perform well the DAO’s job is to not give them stake.
Buying reputation is how protocols get rekt by malicious actors. Bonds can be a way to increase a score, but the quality of the bond matters, and there needs to be a cap for it to not be a large attack vector.
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I don’t disagree. I’m not saying anyone can buy ETH and LDO and get lot of stake, the current validator set is curated anyway so its more like if you do that you get slightly more than the one who doesn’t cause you are more aligned and are staking some reputation behind it.
Safety of the protocol and building up a healthy insurance should be what the design should aim for but I think alignment can be improved more if you bring some sort of reputational stake which gives slightly more advantage to an already chosen NO
Also not a fan of the narrative that NOs are running the validators and “protecting the network” so LDO holders should bow down to them or something. If NOs fuck up LDO holders, stETH holders will have to bear that massive cost while they won’t face any consequences.
I think a fair and clear economic alignment between different actors combined with good protocol design makes the system more robust
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It seems a big inspiration for this proposal is stkAAVE but the other half of their system (stkABPT) never got mentioned. I think there’s a lot of benefits to taking a dual approach here and adopting both parts. For those who may not know what stkABPT is - as part of Aavenomics an 80/20 AAVE/WETH pool was created on Balancer v1 as an additional option for stakers beyond just staking AAVE.
Since the inception of that pool at the end of January 2021 it has facilitated $7.3B of swap volume and earned LP’s $7.3M. For much of that time it also received BAL incentives in addition to AAVE given to stakers.
The benefits of including 80/20 LDO/WETH as a second staking option are numerous and significant:
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In addition to the earnings provided to stakers by Lido you gain two additional revenue streams: swap fees and BAL emissions. With a relatively high swap fee (0.5-1%) this would likely be mid-high 8 figures in additional annual revenue to stakers. Protocol/admin fees earned by Balancer on this pool would be used as voting incentives, thus securing significant BAL emissions “for free”.
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It’s conceivable that this staking program leads to lower LDO market liquidity as a new massive sink is created. By including 80/20 as an option this program will instead deepen LDO on-chain liquidity significantly all for zero additional cost to Lido. The benefits of deeper liquidity speak for themselves, perhaps chief among them: a big stack of locked liquidity would dampen selling pressure if a slashing event were to be on the horizon.
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Balancer has an 80/20 staking incentives program for projects who adopt this standard. It’s a near certainty Lido would hit all TVL & revenue milestones to get the full 250k BAL. This could be used as a strategic asset to direct additional emissions to the 80/20 or to staking product liquidity on Balancer.
We’re big believers in the future of LST’s to displace WETH as the dominant on-chain liquidity pairing. Balancer’s partnership with Lido is a critical part of seeing that future become a reality as we continue to proliferate the use of wstETH everywhere Balancer operates. It would be very exciting to see Lido follow in Aave and others’ footsteps with adopting 80/20 BPT staking.
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Below is my opinion as strategic advisor to Lido, and it does not represent those of the Lido team or other investors. I disagree with the proposal because of economics, priorities, and differentiation.
Economics
First, we’re projecting Lido DAO to make $30m in gross margin (at current eth price), spend $30m in cash, and spend $15m in token incentives, for around $45m in total expenses over the next twelve months. This comes down to a net P/L of -$15m.
Our treasury is $67.5m, so that’s around two years of runway. You suggest spending up to $15m from our treasury, not on growth or improving the product, but to pump the LDO token. This would bring our annual P/L to -$30m and our cash burn to $45m, cutting our runway to ~1 year.
Priorities
If we look at the current roadmap, two things stand out above all:
- shipping the staking router and bootstrapping a vibrant ecosystem around it
- shipping dual governance to derisk the protocol and align the interests of stETH holders and LDO holders
Both are necessary to further decentralize Lido Protocol, the former by expanding the NO set to include smaller operators and the latter by constraining failure modes that come from governance.
Removing the remaining trust assumptions in Lido is incredibly important to realize our mission of making a fully trustless staking middleware for Ethereum, allowing us to scale to a bigger market share safely. We must focus our scarce engineering resources on this single goal and not get distracted by other things before it is done.
Differentiation
Finally, you ask to bond existing Lido node operators (NO) with LDO token. Lido’s key differentiator has been having the lowest cost of attracting a quality NO set. Adding a bond would undermine Lido’s differentiation and raise the cost of attracting and retaining quality NOs, undermining our competitive position.
Bonding validators can make sense but only in the right context. Someone should create a staking module that allows untrusted NOs to join the operator set with a mix of DVT and posting bonds. These bonds can use ETH or LDO, that is for the market to determine.
Summary
In summary, the proposal is so poor and poorly timed that my first instinct would be that it can only come from a) a competitor to Lido or b) someone with an extremely short time horizon who is looking to pump the LDO token for a quick buck. The recent price action (pump → dump) validates that assumption.
The strength of Lido as a DAO and community has always been that we have a longer time horizon than anyone else and that we don’t sacrifice the long term to earn cookie points in the short term. We shouldn’t give up on that now.
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I fully agree with @Hasu regarding the timing of this proposal. It’s not a coincidence that a fund with a large Twitter following tweeted about it minutes after it was posted by @lidomaxi, an account created yesterday. This is not the time to distribute profits for LDO holders when the protocol itself is cash flow negative. As @monet-supply and @steakhouse, it’s important to grow the pie first and be cash flow positive.
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I was reluctant to share this, but I’m getting messages asking which account tweeted right after. I think it’s important for the community to be aware in case anyone is not convinced this proposal is ill-intentioned or, at the very least, suspicious. This was posted at 2:20 PM yesterday by @lidomaxi, an account also created yesterday. Four minutes later, Hal Press tweets about it - I don’t think anyone will believe for a second this is purely coincidental.
And if you think that, even if it was Press who created the proposal, he could be well-intentioned, he has explicitly said in the past: “IMO, LSD tokens should be used as trading tools to acquire more ETH. Buy them when there are obvious narratives and sell them once the narrative has saturated. We did this successfully twice, both with Merge and Shanghai. Issue now is that I don’t see what the next event is.” It seems he created the next event himself.
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I share the views of @monet-supply. Too early in the cycle to be talking profit sharing.
Keep the ideas coming but timing is essence. Do this in a bull market at least, common sense.
And pls no buybacks.
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Hello everyone. While it might seem to early to introduce profit sharing, I’d actually tend to believe the opposite. Lido just enabled withdrawals, and if it wishes to remain a market leader, it will have to additional moats.
Tokenomics is one of the biggest opportunities to reinforce the feedback loop.
However in the current state of the proposal, it is simply suggested that stakeholders provide insurance and be rewarded for it. I believe this is insufficient, and that if we want to draw the parralel with Aave, it is important to be reminded that Aave is currently revamping their safety module to link stakeholders closer to protocol usage.
Why not offer said revenue to stETH holders instead, but modulate it with a boost granted by staking your LDO in the module? This way of proceed has several advantages:
- stETH whales have an incentive in hoarding LDO;
- LDO holders are only rewarded if they use the protocol;
- Lido can be even more competitive on its organic APR;
- It’s creates a new layer of game-theory on top of LDO.
Looking forward to see the discussion evolve and happy to see the DAO open itself to discussions on LDO tokenomics.
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